At its July meeting, the NCUA Board approved a 2013 Corporate Stabilization Fund assessment of 8 basis points (bp) of insured shares as of June.
The agency announced that the assessment will be payable in October. Credit unions should record the expense in July, consistent with GAAP (generally accepted accounting principles), and on their thirdquarter Call Reports.
The good news is that the assessment is on the low end of the projected range of 8 bp to 11 bp.
In fact, this year’s assessment amount of about $700 million could well be sufficient to cover the remaining losses on the legacy assets acquired from the five failed corporate credit unions.
I base that statement on:
CUNA’s previous analysis of the “legacy assets” (primarily mortgagebacked securities bought by the corporates);
Information previously released by NCUA; and
Recent and projected trends for the economy in general and the housing market in particular.
To the extent this turns out to be the case, an assessment next year might well be unnecessary and, therefore, unlikely. The passage of another year and the performance of the legacy assets over that period will provide more clarity on any remaining losses.
Of course, the stronger the recovery in the housing market, the more likely the losses on mortgagebacked securities will almost be fully covered.
Despite this good news, one can wonder whether it was really necessary to cover almost all of the corporate stabilization losses in the first five years of what could have been a 13-year program, from 2009 to 2021.
Because many of the remaining losses won’t be realized for a few more years, it would have been preferable for the timing of the assessments to more closely correspond to the timing of the realization of the losses.
That also would have eased the effects of the assessments on credit union income statements.
As it is, assessments to date (combined with the depleted capital of the failed corporates) exceed the losses realized to date by about $4 billion.
By suggesting the remaining losses are largely paid for, we’re saying there are about $4 billion in losses yet to be realized.
Unfortunately, the timing of the assessments is being driven by factors other than realized losses or the latest estimates of losses to be covered.
It is clear from statements NCUA officials made at the July board meeting that agency based its assessment decision more on liquidity concerns than loss estimates.
Specifically, agency officials appear intent on paying down the $4.7 billion balance of NCUA’s $6 billion line of credit from Treasury to build a sufficient cushion for emergency liquidity needs the agency or share insurance fund might encounter.
In the past, the Central Liquidity Facility (CLF) provided NCUA access to large amounts of emergency liquidity. But in its present form, the CLF no longer serves that purpose.
It’s worth noting the CLF was called on only once to meet a systemic liquidity need during its 33-year history—and that was for corporate stabilization.
After the bulk of this year’s $700 million assessment is applied to pay down the Treasury debt to just over $4 billion, the roughly $2 billion of available liquidity should be more than sufficient to meet any emergency liquidity needs NCUA might encounter during the next several years.
That, plus the likelihood that losses on the legacy assets are largely paid for, should preclude the need for anything but minimal assessments for the next few years.
And if the housing market recovery continues to strengthen, it is possible that credit unions might be able to look forward to a rebate of previous assessments toward the end of the decade.
Credit unions shouldn’t count on that—but it’s not beyond the realm of possibility.
BILL HAMPEL is CUNA’s chief economist and senior vice president of research and policy analysis. Contact him at 202-508- 6760.
CUNA's compliance staff receives a number of questions about TRID rule, leading to publication of a recent CompBlog post addressing means of delivery and timing requirements for the Loan Estimate and Closing Disclosure forms.